Monday, September 17, 2012

Quotation of the Day: A Duty Is a TAX on Imports

Your wish to “label China a currency manipulator” means that you seek a pretext to impose (as your website says) “countervailing duties” on imports from China – which is to say, you seek a pretext for raising taxes on Americans who buy goods and services from China. Yet in other episodes of your campaign you promise (as you did here* last month) “I will not raise taxes on the American people. I will not raise taxes on middle-income Americans.”

If you keep your promise to impose countervailing duties on imports from China you will thereby break your promise to not raise taxes on the American people. (Americans who buy imports from China are, after all, American people.) But if you keep your promise to not raise taxes on the American people, you must – as I hope you will – break your promise to punitively tax those many Americans who buy imports from China.

MP: It's a simple, but often neglected point that a tariff or duty on imports is just another word for a sales-type tax on imported goods, and those tariffs/taxes/duties are not imposed on China or other U.S. trade partners, they are imposed on, and paid for by, Americans (consumers and businesses) who purchase foreign-produced goods.

Tariffs can be called a tax, perhaps, but they're really two different things. First of all, they're meant to discourage the purchase of foreign produced items in favor of domestic ones. That's supposedly favorable to domestic manufacturers and their shareholders and employees and buys some votes. Second, should the consumer, for whatever reason, decide to bite the bullet and purchase the alien product, the state gets a chunk of the price. So the tariff is as much of an advantage to the state as it is a burden on the consumer.

I wonder how much of the $174 billion trade deficit with China is due to US companies offshoring manufacturing for products sold to the US market? Why blame that on China? It's not like they are really competing with us, it's us competing with ourselves.

I wonder how much of the $174 billion trade deficit with China is due to US companies offshoring manufacturing for products sold to the US market?

Well, final goods from China made up about 1.2% of personal consumption expenditures (Source). If we were to assume every one of those goods were once produced in America (a very dangerous and, most likely, inaccurate assumption, but I'll use it for the sake of simple math), then about $2.1 billion is from outsourcing. That would mean the $173.9 billion left would be in terms of intermediary goods (unfinished products like crude oil that is imported and finished here).

Given the giant assumption I made in that analysis, take my calculation with a large dash of salt, but it is probably not a bad starting poitn.

"If you keep your promise to impose countervailing duties on imports from China you will thereby break your promise to not raise taxes on the American people. (Americans who buy imports from China are, after all, American people.)"

OK, if the U.S. does not impose countervailing duties, as agreed to in the Chinese ascension to the World Trade Trade Organization, then...

the American people should know that trade with China is not the "pretext" of market compeition but rather...

under increasing control of the world's largest faction, China's Communist Party.

"...China’s commerce ministry announced in a statement on its Web site that it was filing its own W.T.O. case against the United States, alleging unfairness in how the United States calculates the penalty tariffs in anti-subsidy cases."!!!

Would I rather trade be conducted on fair and open terms? Yes. Would I rather all currencies be allowed to float? Yes. But the purely selfish person in me says I am willing to take the free stuff they give me.

Besides, a tariff does not solve the "fairness" problem. Not in the least.

"So what should the USA do when a major country pegs its currency at an artificially low rate?? "

that's not even a meaningful statement.

what should a country do when a trading partner prints so much money that their currency drops like a rock?

why is our the "natural and correct" rate? after all, they are just pegging to us and moving as we do. it's fine for us to devalue, but not for them? these seems like some pretty extreme double standards.

"So what should the USA do when a major country pegs its currency at an artificially low rate?? "

The USA should do nothing. We should be very quiet and just keep accepting the charity from the major country. If they are willing to sell goods to us that are "artificially" lower then they would be without the peg, then we should be very thankful and quiet so that they do not wake up and see the error of their ways.

What we definitely should not do is impose a tax on our citizens who take advantage of their mistake and buy these goods.

"Consumers" are an amorphous entity that is used to shield from criticism. You can't define them specifically, nor can you target them since they can be magically redefined to include friendlies as well as hostiles.

Let the penalties(the 24%+ tariffs) commence so that US products can be a valid choice not left to the few. The more indirect one is in a business and the more offshoring one uses in it, the greater the penalty. There is no sense in empowering a despotic country by feeding it or rewarding the fellow traveller businesses that offshore to it.

If tax cuts are to come, they come with expanded jurisdictional enforcement obligations (read: obligated to pursue those that hide) and guarantees of greater opportunity for citizens backed by said obligations.

As for QE3, be prepared to handle that militarily as well as economically in order to deal with the despots of the Far East. Appeasement to China is never the answer, no matter how you justify it with economics.

Let the tariffs begin, and if QE3 is necessary, prepare to neutralize the Far East.

Is the US at war with China? In fact, don't hundreds of ships loaded with millions of dollars in goods travel back and forth between the two countries? Don't many Americans visit, for both business and pleasure, China and aren't thousands of Chinese nationals students in American universities? It may well be that the Chinese government and the US government have some sort of differences but those can't possibly extend to the citizens of each country. There's a Chinese church down the block from my house. I see no evidence of hostility from those folks. None of them seem interested in making me throw away my forks and use chopsticks. I don't know anybody in China and have no animosity toward any Chinese. The idea that governments can use the populations of other countries as justification for their own repression is obscene.

givemefreedom:Then I suppose that whatever killed Nortel (Chinese industrial espionage) was not a hostile act. I also suppose that going to China for business wont result in additional things in your electronics that phone home to steal more(which according to you is not a hostile act).

A military response should not be out of the question if QE3 leads to a large dollar selloff. It would stand between life as we know it today and the life of a country like Argentina. Otherwise, stick to economic measures that end offshore evasion.

The Chinese people are not a problem on their own; it is the actions of the influential subset of their population that cause problems between the US and China. The same can be applied to other countries as well.

As for the "cheap goods", the initial acquisiton cost is low but the long-term cost is high.

""Consumers" are an amorphous entity that is used to shield from criticism. You can't define them specifically, nor can you target them since they can be magically redefined to include friendlies as well as hostiles."

what a preposterous statement.

there is nothing amorphous about consumers. when you buy things, you are a consumer. it's pretty straightforward. when you buy a big mac, you are a consumer of mcdonalds.

what could be simpler?

when you buy a sony TV, you are a consumer of imports. if there is a tariff, then you are made worse off and contribute to the overall deadweight loss tariffs impose upon a society.

then, you really fly off the bars.

as the great chinese philosopher and warrior sun tzu said (and i paraphrase) never interrupt your enemy when he is making a mistake.

following his adice (assuming you think china is an enemy) one should shut up and let them sell us things too cheaply.

A military response should not be out of the question if QE3 leads to a large dollar selloff. It would stand between life as we know it today and the life of a country like Argentina.

Who would the military response be directed at? People all over the world hold US currency and Americans hold other currencies. If a misguided tactic like QE3 results in problems with the dollar military action should be taken against the Fed.

Tariffs can be called a tax, perhaps, but they're really two different things. First of all, they're meant to discourage the purchase of foreign produced items in favor of domestic ones.

That is a tax. You force consumers to pay more for a product that they want to buy so that some producer can get more money and stay in business.

That's supposedly favorable to domestic manufacturers and their shareholders and employees and buys some votes.

But it is still a tax on all consumers who have to pay the duties.

Second, should the consumer, for whatever reason, decide to bite the bullet and purchase the alien product, the state gets a chunk of the price. So the tariff is as much of an advantage to the state as it is a burden on the consumer.

It is a burden on the consumer. Romney lied just as Obama always lies. Both are lawyers by training and know nothing substantive about real world economics. Which is why the US will have trouble no matter which one gets elected.

You are "free to choose" to *not* do business with China to some extent, but please don't try to make my buying decisions for me.

Likewise.

I'm completely in favor of capitalism and free trade, but what the chicoms do to hurt their own people is beyond our control and only serves to give US consumers better prices.

That country is empowered by those in business that decide to send work to China. The same thing applies for about any other despotic country that performs formerly-US work.

Rewarding it with permissive policies only makes for a country that is still despotic. You just get a thousand little despots being driven in their Audis and tens of thousands more that have knockoff Buicks. Any attempt to hand freedom to average people in that country results in the person being removed from power.